It’s crazy to think that we are headed down the road (like that pun?) of having completely autonomous vehicles drive us around from one place to another. In the coming decade, our roads will be flooded with self-driving cars. Our time in the car can finally be productive – we can catch up on emails, put on makeup or read a book.
But, what impact will this new-found freedom have on the auto insurance market and how the current policy language responds to claims? Will it translate into cheaper auto insurance premiums? Is the insurance industry ready for this change?
Perhaps more importantly, when a vehicle is engaged in autonomous mode, who bears the liability for any accidents? The manufacturer? The owner? Right now, it’s undetermined.
As far as liability, there are different levels of automation with electronic vehicles. The U.S. Department of Transportation rates a vehicle’s ability to self-drive from level zero (none) to level five (fully autonomous). From levels two to four, where there is still an element of human oversight, accidents can be attributed to human error, which makes up 94% of accidents. In this case, the driver is still liable for any at-fault crash that occurs. It’s only when the level moves to five that the liability switches to the vehicle manufacturer.
Experts are already weighing in with predictions that auto premiums could drop significantly due to a significant decline in frequency of crashes. However, the severity of claims could rise due to the increased cost of the technology and the highly litigious social climate. Either way, auto insurers will need to find new streams of revenue to offset generally lower premiums. They could consider:
- Manufacturers Liability. Failures of the software or a manufacturing defect can lead to significant liability for the manufacturers. These manufacturers will have to take ownership and carry more insurance coverage for this new exposure.
- With the increased use of forefront technology, the vehicles need to be protected against hacking, cyberattacks, etc.
On top of lower premiums, there are some additional impacts that electronic vehicles will have on the insurance industry.
- Claims history and driving behaviors will become irrelevant. Insurance costs might depend more on the type of vehicle and the manufacturer, rather than the owner/driver of the vehicle.
- Shift of liability from the driver to the vehicle (manufacturer)
- Less fraud. The information available to insurers will be coming from telematics and sensors, not from humans.
In a future dominated by autonomous vehicles, insurers will face some difficult choices. They can conduct their business as usual, with the understanding that premiums will continue to decline to transfer of risk, less incidents and fewer people owning vehicles, or they can adjust their business model to the new normal.
The experts at Oswald can help you navigate this new and growing trend.
For more information, please visit our Property & Casualty page or contact me direct:
Team Leader, Middle Market
Note: This communication is for informational purposes only, and is not intended to offer legal, tax, or client-specific risk management advice. Information in this communication is not meant to describe specific coverages that may be advisable or available to you or your company, or to interpret specific coverages that may already be in place. General insurance descriptions in this communication do not include complete insurance policy definitions, terms, and/or conditions, and should not be relied on for coverage interpretation. Actual insurance policies must always be consulted for full coverage details and analysis. View our privacy notice.